Opinion

In Re Ciprofloxacin Hydrochloride Antitrust Litigation

261 F. Supp. 2d 188
2003 U.S. Dist. LEXIS 8476
2003 WL 21146562

Court: District Court, E.D. New York
Filed: May 20, 2003
Status: Published
Author: Trager
On the bench: Trager
Cited by: 52 cases
Authority: More cited than 92.7%

ruling that a consent judgment certifying agreements between a brand-name drug manufacturer and manufacturers of generic drugs to delay market competition and extinguish all patent litigation claims was not subject to Noerr-Pennington protection because the judge in the case “played no role other than signing the Consent Judgment,” id. at 212, and “was ... [not] even apprised of the terms before he ‘so ordered’ the Consent Judgment,” id. at 213, and because “[t]he Consent Judgment did not include the terms of the. agreements,” id. at 212-13

How later courts described this case

ruling that a consent judgment certifying agreements between a brand-name drug manufacturer and manufacturers of generic drugs to delay market competition and extinguish all patent litigation claims was not subject to Noerr-Pennington protection because the judge in the case “played no role other than signing the Consent Judgment,” id. at 212, and “was ... [not] even apprised of the terms before he ‘so ordered’ the Consent Judgment,” id. at 213, and because “[t]he Consent Judgment did not include the terms of the. agreements,” id. at 212-13
concluding plaintiffs in antitrust pharmaceutical case should have been aware of operative facts where generic drug manufacturer publicly disclosed agreement that (i) acknowledged validity of name brand drug patent holder’s patent and (ii) disclosed payment scheme that gave name brand drug patent holder an option either to supply drug or make payments to generic drug manufacturer’s escrow account
holding that plaintiffs’ allegations that brand defendant’s patent was invalid or unenforceable and that brand defendant “paid enormous sums of money to avoid a judicial determination of the patent infringement case,” id. at 200, were not enough to state a triable claim
holding that plaintiff's allegations that a generic would have prevailed in patent litigation were too speculative, especially because of judicially noticed facts about "post-settlement affirmations of the ... [p]atent's validity"

Written by the judges who cited it.

The opinion

MEMORANDUM & ORDER

TRAGER, District Judge.

This suit challenges the validity of agreements between the brand-name manufacturer of the widely used antibiotic ci-profloxacin hydrochloride (“Cipro”) and potential generic manufacturers of Cipro. Direct Purchaser and Indirect Purchaser Class Plaintiffs and Individual Non-Class Plaintiffs (collectively, “plaintiffs”) have brought suit against Bayer AG, a German company, and its American subsidiary, Bayer Corporation (collectively, “Bayer”) and Barr Laboratories, Inc. (“Barr”); The Rugby Group, Inc. (“Rugby”); Hoechst Marion Roussel, Inc. (“HMR”); and Watson Pharmaceuticals, Inc. (“Watson”) (collectively, “Generic Defendants”)

alleging that Bayer and Generic Defendants (collectively, “defendants”) entered into agree

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ments that prevent competition in the market for Cipro in violation of federal and state antitrust laws. Plaintiffs now move this court pursuant to Federal Rule of Civil Procedure 56 for partial summary judgment finding that these agreements are

per se

unlawful under Section 1 of the Sherman Act, 15 U.S.C. § 1 , and various state antitrust and consumer protection laws. Defendants have filed a cross-motion seeking to dismiss plaintiffs’ respective complaints pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to plead facts sufficient to sustain a Sherman Act violation.

These motions present difficult questions of antitrust law and its interaction with patent rights.

Statutory and Regulatory Background

The manufacture and distribution of pharmaceutical drugs in the United States is regulated by the Federal Food, Drug and Cosmetic Act, 21 U.S.C. § 301

et seq.

(the “Act”). Recognizing that the Act’s “cumbersome drug approval process delayed entry of relatively inexpensive generic drugs into the marketplace,”

Mylan Pharms., Inc. v. Shalala,

81 F.Supp.2d 30, 32 (D.D.C.2000), Congress passed the “Hatch-Waxman Amendments” to the Act in 1984.

See

Drug Price Competition & Patent Term Restoration Act of 1984, Pub.L. No. 98^417 (codified as amended at 21 U.S.C. § 355 ). The impetus behind the Hatch-Waxman Amendments was “to make available more low cost generic drugs[.]” H.R.Rep. No. 98-857, pt. 1, at 14 (1984),

reprinted in

1984 U.S.C.C.A.N 2647, 2647. In fact, the Hatch-Waxman Amendments embody Congress’ attempt to “balance two conflicting policy objectives: to induce name-brand pharmaceutical firms to make the investments necessary to research and develop new drug products, while simultaneously enabling competitors to bring cheaper, generic copies of those drugs to market.”

Mylan,

81 F.Supp.2d at 32 (citations omitted).

To this end, the Hatch-Waxman Amendments established new guidelines that simplify the approval process for generic drugs. Previously, any company wanting to market a new drug had to secure approval from the U.S. Food & Drug Administration (“FDA”) by filing a New Drug Application (“NDA”), a process often “time consuming and costly” because a NDA requires companies to submit specific data concerning the drug’s safety and effectiveness.

Andrx Pharms., Inc. v. Biovail Corp. Int’l,

256 F.3d 799, 801 (D.C.Cir. 2001) (citations omitted),

cert. denied

535 U.S. 931 , 122 S.Ct. 1305 , 152 L.Ed.2d 216 (2002). Under the new guidelines, a generic drug manufacturer can file an Abbreviated New Drug Application (“ANDA”) that incorporates by reference the safety and efficacy data developed and previously submitted by the company that manufactured the original, “pioneer” brand-name drug. To obtain FDA approval, the

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ANDA filer must demonstrate that its product is “bioequivalent” to the pioneer drug. 21 U.S.C. § 355 (j)(2)(A)(iv).

To protect the patent rights of the pioneer drug manufacturer, the ANDA filer must make one of four certifications in its ANDA concerning patents listed with the FDA for the pioneer drug,

namely that (1) no patent for the pioneer drug is listed in the Orange Book; (2) the patent listed in the Orange Book has expired; (3) the listed patent will expire on a particular date, and the ANDA filer does not seek FDA approval before that date (a “Paragraph III Certification”); and (4) the listed patent “is invalid or ... will not be infringed by the manufacture, use, or sale of the [generic] drug” (a “Paragraph IV Certification”).

Id.

§ 355{j)(2)(A)(vii);

see also

21 C.F.R. § 314.94 (a)(12)(A)(4).

An ANDA containing a Paragraph IV Certification (an “ANDA IV”) has “important legal ramifications. It automatically creates a cause of action for patent infringement.”

Mylan,

81 F.Supp.2d at 32 . Indeed, an ANDA applicant making such a certification must notify , the owner of the listed patent of the filing of its ANDA and certification.

See

21 U.S.C. § 355 (j)(2)(B). Thereafter, the patent holder has 45 days to initiate a patent infringement suit against the ANDA applicant.

See id.

§ 355(j)(5)(B)(iii). If the patent holder does not commence an action within 45 days, the FDA may approve the ANDA at any time.

See id.

If a timely infringement suit is initiated, the FDA cannot approve the ANDA for 30 months.

See id.

Moreover, the court hearing the patent case may, in its discretion, extend the 30-month stay if either party fails to “reasonably cooperate in expediting the action.”

Id.

§ 355(j)(5)(B)(iii).

However, if the court presiding over the infringement action determines before the 30-month period expires that the patent at issue is “invalid or not infringed,” approval is effective “on the date of the court decision!.]”

Id.

§ 355(j)(5)(B)(iii)(I).

The Hatch-Waxman Amendments provide an incentive to encourage generic drug manufacturers to challenge listed patents for brand-name drugs. As an incentive to incur “potentially substantial litigation costs,”

Mylan,

81 F.Supp.2d at 33 , the first company to submit an ANDA IV is awarded a 180-day period of exclusive rights to market a generic formula of the pioneer drug.

See

21 U.S.C. § 355 (j)(5)(B)(iv). Prior to the expiration of the exclusivity period, the FDA cannot finally approve any other ANDA for the same generic drug.

See id.

The exclusivity period is triggered by either the commercial marketing of the generic drug by the first ANDA filer or the decision of a court finding the pioneer drug’s patent to be either invalid, unenforceable, or not in

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fringed.

See id.; see also

21 C.F.R. § 314.107 .

Factual Background

(1)

Bayer manufactures and distributes Ci-pro, a broad spectrum antibiotic that is prescribed for various infections and is dispensed in tablet, liquid and intravenous forms. Bayer AG claims the active ingredient in Cipro — ciprofloxacin hydrochloride — in Patent No. 4,670,444 (the “444 Patent”), which was issued by the Patent and Trademark Office (“PTO”) on June 2, 1987.

See

App. to Bayer’s Mem. in Opp’n to Pis.’ Mot. for Partial Summ. J. (“Bayer App.”), Ex. 1. The 444 Patent expires on December 9, 2003. In October 1987, Miles, Inc. (the predecessor to Bayer Corporation and the licensee of the 444 Patent) obtained FDA approval to market Ci-pro in the United States. Cipro has been the best selling antibiotic in the United States for many consecutive years and is described as “the most prescribed antibiotic in the world.” D.P. Compl. ¶ 1. Since 1987, Bayer has been the only producer of Cipro in the United States, and, since 1997, Bayer has derived over $1 billion in U.S. net sales of all Cipro products.

See

Bayer App., Ex. 12 ¶ 3.

By letter dated October 22, 1991, Barr filed ANDA 74-124 for a generic, bioequi-valent version of Cipro.

See

App. to Decl. of Edwin John U in Supp. of Generic Defs.’ Mem. in Opp’n to Pis.’ Mot. for “Partial Summ. J.” (“G.Defs.’ Summ. J. Mem.”) (“G.Defs.’ App.”), Tab 1. Barr’s ANDA included a Paragraph IV Certification seeking the FDA’s permission to market its generic drug before the 444 Patent expires on the grounds that the patent is invalid and unenforceable.

See

J.A. in Supp. of all Pis.’ Mot. for Summ. J. (“Pis.’ J.A.”), Ex. T. As set forth in the Hatch-Waxman Amendments, on December 6, 1991, Barr notified Bayer of its ANDA IV filing and its assertions contained therein regarding Bayer’s 444 Patent.

See id.

On January 16, 1992, Bayer commenced a timely patent infringement suit against Barr in the Southern District of New York, thereby triggering the 30-month statutory waiting period for FDA approval.

See generally id.,

Ex. G;

see also

Bayer App., Ex. 3. This litigation was styled

Bayer AG and Miles, Inc. v. Barr Labs., Inc.,

798 F.Supp. 196 (S.D.N.Y.1992) (Knapp, J.). In its pleadings, Barr denied any violation of the patent laws and asserted counterclaims seeking a declaratory judgment that the 444 Patent is invalid and unenforceable.

See generally

Pis.’ J.A., Exs. H, I.

Subsequently, in November 1992, Bayer and Barr executed a stipulation whereby

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the parties agreed to extend the 30-month waiting period until final judgment was entered in the patent infringement action.

See id.,

Ex. J. This stipulation was “so ordered” by Judge Knapp on December 8, 1992.

See id.

Absent this agreement, the stay would otherwise have expired on April 22, 1995.

See id.

In a letter dated January 4,1995, while the patent litigation was pending, the FDA granted tentative approval of Barr’s ANDA for generic Ci-pro.

See id.,

Ex. U. Plaintiffs contend that this approval was tentative, rather than final, due to the parties’ stipulation to extend the 30-month stay.

See

D.P. Summ. J. Mem. at 15. In fact, in its letter to Barr, the FDA stated that “[i]n certain cases approval can be granted after the expiration of the 30-month period.... In this case, the 30-month option is not relevant. The [FDA] was advised that on December 8, 1992, the court ordered that the 30-month period be extended[.]” Pis.’ J.A., Ex. U. A year later, in January 1996, Bayer and Barr filed cross-motions for partial summary judgment.

See

Bayer App., Ex. 16. Judge Knapp denied the parties’ respective motions in an order and opinion dated June 5, 1996.

See

Pis.’ J.A., Ex. K. Upon a motion by Bayer to reconsider that ruling, the court re-affirmed its decision in a separate order and opinion dated September 5, 1996.

See id.,

Ex. L. After some postponements, trial of the patent litigation was finally scheduled to begin on January 27,1997.

Meanwhile, HMR and Rugby entered the fray. On March 29, 1996, Barr and Rugby entered into an agreement pursuant to which Barr agreed to share equally with Rugby (then a subsidiary of HMR) any rights and profits from the eventual marketing and/or distribution of Cipro, and, in return, Rugby agreed to finance a portion of the costs and expenses of the patent litigation (the “Litigation Funding Agreement”).

See generally id.,

Ex. P. By subsequent amendment, HMR succeeded to Rugby’s rights under this agreement. See

id.,

Ex. Q § 1.1. Rugby was later acquired by Watson and is now a wholly owned subsidiary of Watson.

(2)

As the trial date approached, Bayer and Barr reached a settlement that concluded the patent litigation in the Southern District. In connection with the settlement, on January 8, 1997, Bayer entered into three separate but interrelated settlement agreements with Barr, HMR and Rugby, and Bernard Sherman (“Sherman”) and Apotex, Inc. (“Apotex”)

(collectively, the “Settlement Agreements”) and a supply agreement with Barr and HMR (the “Sup

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ply Agreement”). The terms of these agreements

form the

bases of plaintiffs’ allegations of a Sherman Act violation. Under the Settlement Agreements, Barr, HMR, Rugby, Sherman, and Apotex acknowledged the validity of the 444 Patent and additional U.S. Patents held by Bayer.

See id.,

Ex. B § 4;

id.,

Ex. C § 3;

id.,

Ex. D § 1. In the Barr Settlement Agreement, Barr also agreed to amend its ANDA to change its Paragraph IV Certification to a Paragraph III Certification, thereby permitting Barr to obtain FDA approval to market generic Cipro only upon expiration of the 444 Patent.

See id.,

Ex. B § 5(a);

see also

21 U.S.C. § 355 (j)(2)(A)(vii)(III). The agreement also provides for an immediate $49.1 million payment from Bayer to the “Barr Escrow Account.”

See

Pis.’ J.A., Ex. B § 1.

In the Supply Agreement, Barr and HMR agreed not to manufacture (or to have manufactured) Cipro in the United States.

See id.,

Ex. E § 3.01. In addition, the agreement provides that Bayer either will (1) supply Bayer-manufactured Cipro to Barr, HMR and Rugby for distribution in the United States, subject to certain price controls,

see id.

§ 3.06(a)(i); or (2) make quarterly payments — varying from $15 million to approximately $17 million— to the Barr Escrow Account from January 1998 through December 2003 (when the 444 Patent expires).

See id.

§§ 3.06(a)®, 4.01(a), 4.02 & Sch. 4.01. If Bayer does not license Cipro immediately, it has agreed to do so at a set price if another generic company successfully challenges the validity of the 444 Patent.

See id.

§§ 1.01, 3.06(d). In addition, defendants claim that Bayer agreed to supply Cipro to Barr for marketing under a generic label beginning six months prior

to the

expiration of the 444 Patent.

See id.

§ 3.06(a)(ii). To date, Bayer has chosen to make payments to the Barr Escrow Account, which through December 2003 will total approximately $398 million.

See id.,

Sch. 4.01.

(3)

Pursuant to the terms of the Barr Settlement Agreement, Bayer and Barr submitted to Judge Knapp a two-page consent judgment (the “Consent Judgment”) that the parties had negotiated and that extinguished all claims raised in the patent litigation.

See id.,

Ex. N. On January 16, 1997, Judge Knapp signed the Consent Judgment in the form submitted by the parties.

See id.

The Consent Judgment entered judgment for Bayer, providing that the 444 Patent is valid and enforceable as to, and was infringed by, Barr.

See id.

¶¶ 2-4. There was no mention in the Consent Judgment of the payments Bayer agreed to make to the Barr Escrow Account or the agreement by Barr, HMR and Rugby not to manufacture and market a generic form of Cipro. The Settlement Agreements and the Supply Agreement were not filed with or otherwise provided to the patent court, but the court was

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apprised of the material terms of the settlement on January 30, 1997 when Bayer’s counsel forwarded Bayer’s news release to the court.

See

G.Defs.’ App., Tab 10.

On January 17, 1997, Bayer and Barr each issued a news release announcing the settlement and discussing the payment scheme set forth in the Supply Agreement.

See

Pis.’ J.A., Ex. B § 8 (permitting press releases); G.Defs.’ App., Tabs 10, 11. In fact, the press releases note that the settlement is comprised of two components: (1) an initial cash payment and (2) a Supply Agreement, which sets forth Bayer’s option to make payments to the Barr Escrow Account or to provide Barr with Cipro that Barr would market pursuant to a license from Bayer.

See generally

G.Defs.’ App., Tabs 10,11. Also, on January 22, 1997, pursuant to the Barr Settlement Agreement, Barr filed an amendment to its ANDA 74-124,

see

Pis.’ J.A., Ex. V, and in a letter to the FDA dated January 23, 1997, Barr amended its Paragraph IV Certification to a Paragraph III Certification.

See id.,

Ex. W.

In July 1997, Bayer voluntarily submitted its 444 Patent to the PTO for reexamination, and, upon reexamination, the PTO reaffirmed the patent’s validity.

See

Bayer App., Exs. 17, 18. Since the execution of the Settlement Agreements, four generic companies have filed ANDA IVs for Cipro and have mounted challenges to the 444 Patent similar to the challenge raised by Barr; one challenge was dismissed,

see Bayer AG v. Ranbaxy Pharms., Inc.,

No. 3:98 Civ. 4464 (D.N.J. Oct. 29, 1999) (dismissing case per stipulation), Bayer App., Ex. 21, and three challenges were unsuccessful,

see Bayer AG v. Schein Pharm., Inc.,

301 F.3d 1306 (Fed.Cir.2002) [hereinafter

“Schein &

Mylan”], unpublished version enclosed with Letter from Counsel for Bayer to Judge Trager of 8/19/02;

Bayer AG v. Carlsbad Tech., Inc.,

No. 01 Civ. 867-B (S.D.Cal. Oct. 24, 2001) (denying Carlsbad’s motion for summary judgment), Bayer App., Ex. 31. At present, Bayer sells the only ciprofloxacin hydrochloride drug available in the United States.

Discussion

Motion to Dismiss — Federal Claims

Defendants have before this court numerous motions to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6).

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Bayer and Generic Defendants move to dismiss each of plaintiffs’ respective complaints for failure to state a claim upon which relief can be granted.

Watson moves to dismiss the claims in the Aston Complaint and Indirect Purchaser Plaintiffs’ Complaint as failing to state a cognizable claim as to Watson.

In addition, Generic Defendants seek to dismiss the claims of the “Organizational Plaintiffs” contained in the Aston Complaint as time-barred. Lastly, Generic Defendants seek to dismiss Indirect Purchaser Plaintiffs’ claims on various additional grounds related to those plaintiffs’ allegations under state antitrust and consumer protection laws.

(5) Memorandum of Law in Support of Watson Pharmaceuticals, Inc.'s Motion to Dismiss ("Watson Mot. Dismiss Mem.”).

When considering defendants’ motions to dismiss under Rule 12(b)(6), the court must deny the motions unless “it appears beyond reasonable doubt that the plaintiff[s] can prove no set of facts in support of [their] claim[s] which entitle [them] to relief.”

Conley v. Gibson,

355 U.S. 41, 45-46 , 78 S.Ct. 99, 102 , 2 L.Ed.2d 80 (1957). Moreover, the court is obligated to accept the complaints’ allegations as true and to read them in the light most favorable to plaintiffs.

See Chambers v. Time Warner, Inc.,

282 F.3d 147, 152 (2d Cir.2002);

Cruz v. Coach Stores, Inc.,

202 F.3d 560, 565 (2d Cir.2000). When determining the suffí-ciency of a plaintiffs claim, “consideration is limited to the factual allegations in [the] complaint, which are accepted as true, to documents attached to the complaint as an exhibit or incorporated in it by reference, to matters of which judicial notice may be taken, or to documents either in plaintiffs’ possession or of which plaintiffs had knowledge and relied on in bring suit.”

Brass v. Am. Film Techs.,

987 F.2d 142 , 150 (2d Cir.1993) (citing

Cortee Indus., Inc. v. Sum Holding L.P.,

949 F.2d 42 , 47-48 (2d Cir.1991)).

Two sections of the Clayton Act authorize private parties to bring suit under the federal antitrust laws. Section 4 of the Clayton Act provides treble damages to “ ‘[a]ny person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws....’”

Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.,

429 U.S. 477, 485 , 97 S.Ct. 690, 696 , 50 L.Ed.2d 701 (1977) (quoting 15 U.S.C. § 15 (a)). Moreover, Section 16 of the Clayton Act provides injunctive relief to persons “threatened [with] loss or damage by a violation of the antitrust laws.”

15 U.S.C. § 26 . The Clayton Act includes the Sherman Act, 15 U.S.C. § 1

et seq.,

as one of the “antitrust laws.”

Id.

§ 12. To plead a claim under Section 1 of the Sherman Act, plaintiffs must allege that defen

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dants’ conduct imposed an actual restraint on competition. As an initial matter, plaintiffs have sufficiently alleged that defendants’ conduct constitutes a restraint on competition in violation of Section 1. The facts supporting plaintiffs’ argument, and a discussion concerning the merits of their argument, will be set forth in some detail in the discussion below regarding summary judgment. Suffice it to say that the complaints adequately allege that the Supply Agreement and Settlement Agreements operate to pay Bayer’s generic competitors, Barr, HMR and Rugby, hundreds of millions of dollars to suppress generic competition in the domestic market for Cipro and that those competitors did abandon their efforts to come to market with less expensive, generic forms of Cipro.

However, the Supreme Court has cautioned that although a defendant’s conduct can constitute a violation of Section 1, such liability does not indicate whether a private plaintiff has suffered the appropriate injury to seek relief under the Clayton Act.

See Atl. Richfield Co. v. USA Petroleum Co.,

495 U.S. 328, 342 , 110 S.Ct. 1884, 1893 , 109 L.Ed.2d 333 (1990). Therefore, to recover damages under Section 4 (or to qualify for injunctive relief under Section 16) of the Clayton Act, plaintiffs must also allege that the challenged restraint, even if it violates Section 1, is causally linked to their alleged injury (i.e., injury-in-fact),

see Associated Gen. Contractors of Cal, Inc. v. Cal. State Council of Carpenters,

459 U.S. 519, 535 , 103 S.Ct. 897, 907 , 74 L.Ed.2d 723 (1983);

Argus, Inc. v. Eastman Kodak Co.,

801 F.2d 38, 41 (2d Cir.1986), and that such injury is an “antitrust injury.”

Brunswick,

429 U.S. at 489 , 97 S.Ct. at 697 . Antitrust injury is “injury of the type that the antitrust laws were designed to prevent and that flows from that which makes defendants’ acts unlawful.”

Id.; see also Atl. Richfield,

495 U.S. at 344-45 , 110 S.Ct. at 1894-95 ;

Balaklaw v. Lovell,

14 F.3d 793, 797 (2d Cir.1994) (quoting

Brunswick,

429 U.S. at 489 , 97 S.Ct. at 697 );

Volvo N. Am. Corp. v. Men’s Int’l Prof 'l Tennis Council,

857 F.2d 55, 66 (2d Cir.1988) (quoting

Cargill, Inc. v. Monfort of Colo., Inc.,

479 U.S. 104 , 107 S.Ct. 484 , 93 L.Ed.2d 427 (1986) (quoting

Brunswick,

429 U.S. at 489 , 97 S.Ct. at 697 )). Bayer and Generic Defendants’ claims regarding the common deficiencies of the four consolidated complaints will be addressed first. Then Watson’s motion and Generic Defendants’ additional claims will be discussed

seriatim.

(1)

Injury-in-Fact

Plaintiffs maintain that the challenged agreements suppressed entry of a generic version of Cipro into the U.S. market. As a result, plaintiffs claim that they are paying more than they would have paid for Cipro absent defendants’ alleged restraint.

See

Aston Compl. ¶ 97; CVS Compl. ¶ 65; D.P. Compl. ¶ 73; I.P. Compl. ¶ 135. Defendants assert that plaintiffs have no claim under the antitrust laws because all of their theories of liability depend on generic entry into the domestic market for Cipro, which defendants claim is completely blocked by the 444 Patent. Therefore, defendants maintain that plaintiffs’ alleged injuries flow from the existence of the 444 Patent and not from any claimed restraint on trade. In response to this position, plaintiffs offer three theories in support of their claim.

a. Successful Litigation

Plaintiffs allege that but for the challenged agreements, Barr would have prevailed in the patent litigation and then Barr, HMR and Rugby (and possibly other generic firms) would have come to market with generic versions of Cipro.

See

CVS

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Compl. ¶ 49; D.P. Compl. ¶ 61.

Plaintiffs support this theory of causation with assertions that Barr submitted to the FDA a Paragraph IV Certification, stating that the 444 Patent is invalid or unenforceable,

see

CVS Compl. ¶22; D.P. Compl. ¶32, and that “for six years — until it was paid hundreds of millions to concede otherwise — Barr vigorously asserted that the ’444 patent is invalid and unenforceable.” Direct Purchaser Pis.’ Mem. in Opp’n to all Defs.’ Mot. to Dismiss the Compls. (“D.P. Mot. Dismiss Mem.”) at 7. Moreover, Barr repeated its assertion that the patent is invalid during the patent litigation, withstanding Bayer’s motions for summary judgment and reconsideration, both of which were denied.

See

CVS Compl. ¶¶ 25, 29-31; D.P. Compl. ¶¶35, 38-39. Lastly, plaintiffs emphasize that Bayer paid enormous sums of money to avoid a judicial determination of the patent infringement case.

See

CVS Compl. ¶¶ 34-35; D.P. Compl. ¶¶ 41-42.

The Supreme Court has held — albeit in a different factual context — that a legal theory dependent on predicting the outcome of a specific lawsuit is unduly speculative.

See Whitmore v. Arkansas,

495 U.S. 149, 159-60 , 110 S.Ct. 1717 , 109 L.Ed.2d 135 (1990). In

Whitmore ,

a death row inmate wanted to challenge the validity of a death sentence imposed on another capital defendant who waived his right to appeal to the Arkansas Supreme Court.

See id.

at 151 , 110 S.Ct. at 1719. The plaintiffs alleged injury was that if the eourt did not review the capital defendant’s sentence, that defendant’s crimes would not be included in a database of crimes of convicted capital defendants, which was compiled by the state for comparative purposes to ensure fair application of the death penalty.

See id.

at 156, 110 S.Ct. at 1723. To support his claim, the plaintiff asserted that he may eventually seek federal habeas corpus relief that would entitle him to a new trial and that, if he received this new trial and was again sentenced to death, his crime would then be compared to the crimes in the state database. The Supreme Court remarked that to prevail with his claim, the plaintiff would have to prove not only that he may eventually secure federal habeas corpus relief but that, if he did, he would be retried, convicted and again sentenced to death.

See id.

at 157, 110 S.Ct. at 1724. The Court found the plaintiffs alleged injury “too speculative” to constitute an injury in fact and denied him standing to bring his claim.

Id.; see also id.

at 159-60, 110 S.Ct. at 1725 (“It is just not possible for a litigant to prove in advance that the judicial system will lead to any particular result in his case.”).

Although no other decision of the Court addresses this question in an antitrust or other economic context, the Second Circuit has foreclosed speculation about the outcome of litigation in the corporate context.

See Boehm v. Comm’r,

146 F.2d 553 (2d Cir.),

aff'd,

326 U.S. 287 , 66 S.Ct. 120 , 90

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L.Ed. 78 (1945). In

Boehm ,

a stockholder postponed reporting losses on worthless stock for tax purposes until resolution of a pending stockholder derivative action, which ultimately settled.

See id.

at 553-55 . The plaintiff argued that she postponed her losses because she believed that her stock could in fact have had some value if the litigation were successful, thereby restoring money to the corporate treasury.

See id.

at 555 . The Second Circuit rejected this argument. In doing so, it found that the tax court properly inferred that the derivative suit had unproven value and, therefore, that the probability of a particular result in that litigation was “too speculative.”

Id.; see also United States v. Carboni,

204 F.3d 39, 46-47 (2d Cir.2000) (holding that the district court properly refused to consider the outcome of a potential lawsuit in determining for sentencing purposes the amount of loss caused by the criminal defendant’s fraudulent acts because “the cost of litigation and the uncertainty of success made any recovery ... speculative”).

In this case, without a showing of patent invalidity, all that the complaints contain is conjecture as to (1) whether Barr would prevail in the trial court; (2) whether the Federal Circuit would reverse any ruling for Barr; (3) whether the Supreme Court would have heard this case; and (4) when this case ultimately would be resolved. Plaintiffs’ allegations, far from proving causation, merely allege that prior to its settlement with Bayer, Barr initiated and then litigated this case in good faith and to the best of its abilities. Therefore, this allegation, like those in

Whitmore

and

Boehm ,

is too speculative and is insufficient to state a claim under the antitrust laws.

The speculative nature of plaintiffs’ allegations is highlighted by the post-settlement affirmations of the 444 Patent’s validity. For instance, in 1997, Bayer voluntarily submitted the 444 Patent to the PTO for reexamination pursuant to 35 U.S.C. § 305 , and the PTO upheld the patent’s validity. More significantly, other generic manufacturers have brought challenges to the 444 Patent — all unsuccessfully.

Indeed, the Court of Appeals for the Federal Circuit has upheld summary judgment for Bayer on the issue of the 444 Patent’s validity.

See Schein & Mylan,

301 F.3d 1306 . These judicially noticed facts provide more compelling evidence than the proffers made by plaintiffs, who really can do little more than speculate about what might or might not have happened if the patent litigation had continued.

These facts do not,

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however, shield the 444 Patent from all future challenges. Rather, the significance of the reexamination and the litigation that Bayer has won is that plaintiffs’ allegations that Barr “would have won” the patent challenge are little more than dubious expectations or desires. Therefore, plaintiffs can not avoid dismissal based on a claim of injury-in-fact that relies on the hope that Barr would have prevailed in its suit against Bayer.

b. Final FDA Approval

Some of the plaintiffs also allege that but for the challenged agreements, Barr would have received final marketing approval from the FDA (i.e., it would not have changed its Paragraph IV Certification to a Paragraph III Certification) and it would have marketed generic Cipro before resolution of the patent litigation.

See

CVS Compl. ¶ 49; I.P. Compl. ¶¶ 63, 65, 136. If Barr had entered the market, other generic companies, like HMR and Rugby, could have entered the market with their own generic versions of Cipro after Barr’s 180-day exclusivity period. Plaintiffs emphasize that the availability of this theory clearly establishes that, despite defendants’ contentions, it is not necessary to plead patent invalidity to state a cognizable claim of an antitrust violation.

It is not contested that before a company may market a new drug, it must receive FDA approval.

See

21 U.S.C. § 355 (a)

(“No

person shall introduce or deliver for introduction into interstate commerce any new drug, unless an approval of an application ... is effective with respect to such drug.”). As described above, the Hatch-Waxman Amendments simplified the approval process for companies wanting to market generic drugs by permitting such companies to file an ANDA. The amendments also addressed the interests of patent holders by requiring an ANDA filer to include one of four certifications regarding the patents held by the pioneer drug manufacturer. The certification relevant to this case — the Paragraph IV Certification — seeks FDA permission to market a generic drug before the expiration of the pioneer manufacturer’s patent by asserting either that the patent is invalid and unenforceable or that the generic drug product does not infringe the patent.

See 21

U.S.C. § 355 (j)(2)(A)Cvii)(IV);

see also

Sheila F. Anthony,

Riddles and Lessons from the Prescription Drug Wars: Antitrust Implications of Certain Types of Agreements involving Intellectual Property

at 2 (June 1, 2000) (“Under the [Hatch-Waxman] Act, the FDA is empowered to approve a generic for market even

before

the branded company’s patents expire.”).

Therefore, if the patent holder wants to prevent generic competition after the 30-month stay expires but before resolution of the patent infringement case, it must obtain a preliminary injunction restraining generic sales that allegedly infringe upon its patent.

See Ciprofloxacin I,

166 F.Supp.2d at 740;

Zeneca,

16 F.Supp.2d at 116 (citing 21 U.S.C. § 355 (j)(5)(B)(iii)(III)). Occasionally, courts have denied preliminary injunctions in patent cases on the ground that, until there is a judicial finding of validity and infringement, the alleged infringer has a “right to compete.”

Ill. Tool Works, Inc. v. Grip-Pak, Inc.,

906 F.2d 679, 684 (Fed. Cir.1990) (noting that the district court properly balanced the public interest in the protection of patent rights against the alleged infringer’s continuing right to compete during motion stage of litigation);

see also Easter Unlimited v. Rubie’s Costume Co.,

No. 00 Civ. 6241, 2000 WL 1341400 , at *10 (S.D.N.Y. Sept. 15, 2000) (“While there is a public interest in the protection of patent rights, this interest is counterbalanced by [alleged infringer’s] continuing right to compete before a trial on the merits can be concluded.”);

accord Cargo Protectors, Inc. v. Am. Lock Co.,

92 F.Supp.2d 926, 935 (D.Minn.2000).

The complaints in this case contain numerous facts in support of plaintiffs’ allegation that but for the challenged agreements, Barr would have received final FDA approval to market its generic product and would thereby have had the capacity to enter the Cipro market before resolution of the patent suit. In October 1991, Barr filed an ANDA IV seeking the FDA’s permission to market a generic version of Cipro before the expiration of the 444 Patent.

See, e.g.,

CVS Compl. ¶22. Shortly thereafter, Barr notified Bayer of its ANDA and certification.

See, e.g., id.

¶ 23. On January 16, 1992, Bayer commenced a timely patent infringement case against Barr, thereby triggering the statutory waiting period for FDA approval of Barr’s ANDA.

See, e.g., id.

¶24. The parties subsequently stipulated to extend the statutory waiting period until final resolution of .the patent infringement case.

See, e.g., id.

¶ 26. In January 1995, while the case was still pending, the FDA granted tentative approval of Barr’s ANDA for generic Cipro.

See

Aston Compl. ¶ 66. In the FDA’s letter to Barr granting this approval, it stated that the FDA had “completed the review of [Barr’s] abbreviated application and has concluded that, based upon the information [Barr has] presented to date, the drugs are safe and efficient for uses as recommended in the submitted labeling — therefore, the application is tentatively approved.”

Id.

According to plaintiffs, once Barr received tentative approval, final approval was imminent

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upon expiration of the 30-month stay. However, under the Barr Settlement Agreement, Barr agreed to (and did in fact) amend its ANDA to contain a Paragraph III Certification instead of a Paragraph IV Certification, thereby relinquishing its efforts to come to market before the 444 Patent expires.

See id.

¶¶ 74, 84. These allegations adequately show that but for the stipulation and Barr Settlement Agreement, the statutory stay would have expired in April 1995, at which time Barr would have likely received final FDA approval to market its generic Cipro.

Accordingly, plaintiffs maintain that once Barr received FDA approval, it would have had a “right to compete” with Bayer and that it should have been permitted to decide on its own, without colluding with Bayer, whether it would enter the market or withhold its product pending resolution of the patent litigation.

Bayer, however, has labeled this theory as “plaintiffs’ theory of infringing entry,” which it likens to a market in stolen, infringing goods. Bayer Mot. Dismiss Mem. at 25;

see also

D.P. Compl. ¶ 58; I.P. Compl. ¶ 113. Like the previously-discussed theory, this theory does not require plaintiffs to allege that the 444 Patent is invalid.

In support of this theory, Direct Purchaser Plaintiffs contend that Bayer at different times had entered serious discussions with both Schein Pharmaceuticals, Inc. (“Schein”) and Barr concerning the issuance of a license to market generic Cipro.

See

D.P. Compl. ¶ 58. For instance, they assert that in or about August 1996, Bayer met with Barr and/or HMR to discuss,

inter alia,

the possibility of Bayer issuing an exclusive license to Barr to market a generic form of all present and future forms of Cipro.

See id.

Moreover, the complaints allege that at the time of the challenged agreements, there was a serious dispute as to the validity of the 444 Patent. In fact, Judge Knapp denied both Barr and Bayer’s respective motions for summary judgment.

Moreover, defendants recognize the leverage that Barr had in this case, particularly under the new Hatch-Waxman scheme, which allows a generic manufacturer to seek entry into a market without incurring damages for infringement.

See, e.g.,

Bayer’s Mem. in Opp’n to Pis.’ Mot. for Partial Summ. J. (“Bayer’s Summ. J. Mem.”) at 31 (“The patent owner has much more at stake, because it may lose its patent altogether. Its losses represent a larger share of the market, with much higher lost profits (due to higher prices) on each sale. Thus, the generic challenger’s potential upside can be a fraction of the patent owner’s potential downside.”).

Indeed, defendants concede that patent litigation is inherently uncertain and that, consequently, many patent infringement cases settle.

See, e.g., id.

(“[N]o matter how valid a patent is — no matter how often it has been upheld in other litigation ... or successfully reexamined ... — it is still a gamble to place a technology case in the hands of a lay judge or jury.... Even the confident patent owner knows that the chances of prevailing in [patent] litigation rarely exceed seventy percent.... Thus, there are risks involved even in that rare case with great prospects.”) (internal quotation marks and citations omitted);

id.

at 32 (“The range of potential settlements is now substantial. Because the generic challenger’s valuation of victory is smaller than the patent owner’s valuation of loss, settlement is highly likely.”) (citation omitted); G.Defs.’ Summ. J. Mem. at 16-17 (“The inherent uncertainty of a trial and appeal meant that Bayer faced some risk of losing even a valid patent, along with the attendant profits which the patent laws are designed to provide to patent holders.”);

id.

at 16 (“It is beyond dispute that some 95% of all litigation settles.”) (citation omitted).

In addition, plaintiffs argue that their contention is supported by the provisions of the Supply Agreement. In fact, the Supply Agreement contains a licensing provision pursuant to which Bayer would supply Barr and HMR with generic Cipro to bring onto the market beginning as early as January 1, 1998. The agreement also contains provisions giving Bayer the unilateral right not to issue a license and instead to pay Barr and HMR hundreds of millions of dollars in exchange for their agreement not to manufacture competing, generic versions of Cipro. Accordingly, plaintiffs maintain that in the absence of the challenged agreements (i.e., without the payment option) Bayer would in fact have entered into a license arrangement. Plaintiffs also argue that the evidentiary value of the licensing provisions is bolstered by the agreement’s severability clause, which provides for the provisions to be enforced “if any term or provision of

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this Agreement shall for any reason be held invalid, illegal or unenforceable in any respect.” CVS Compl. ¶ 51; D.P. Compl. ¶ 60.

Defendants argue that Bayer has a right, acting unilaterally, not to license its patent and that plaintiffs’ claim “turn[s] this principle on its head” by stripping Bayer of this right and by creating a legal duty to license: “Even though plaintiffs purport to concede that a patentee cannot be held liable under the antitrust laws for failing to grant a license, plaintiffs argue that the same failure to grant Barr a license ... gives rise to cognizable injury under the antitrust laws.” Bayer Mot. Dismiss Mem. at 36-37. Bayer then cites numerous cases to support its proposition that Bayer cannot be liable under the antitrust laws for refusing to license its 444 Patent.

See id.

Bayer is correct in its recitation of the law.

See, e.g., SCM Corp. v. Xerox Corp.,

645 F.2d 1195, 1204 (2d Cir.1981) (finding refusal to license immune from antitrust scrutiny). Moreover, plaintiffs recognize that Bayer has a unilateral right not to license under the challenged agreements and at law. In addition, they concede that the challenged agreements contain a license. However, defendants seriously misconstrue plaintiffs’ allegations, which are not in conflict with this principle of patent law.

Plaintiffs do not contend that Bayer violated the antitrust laws because it unilaterally refused to issue Barr and/or HMR and Rugby a license. Rather, plaintiffs allege that if Bayer had not entered into the challenged agreements, under which it paid Barr, HMR and Rugby in lieu of supplying Cipro, those Generic Defendants would in fact have entered the market with generic Cipro. According to plaintiffs, but for the agreements, Barr would have used the leverage of the pending patent litigation to obtain a license under the 444 Patent for itself and/or HMR and Rugby. Thus, plaintiffs allege that Bayer, notwithstanding its legal right not to issue a license, would

in fact

have granted Barr and/or HMR and Rugby a license. Accordingly, this case is distinguishable from cases like

SCM

cited by defendants, all of which address whether a defendant’s refusal to grant a license violates the Sherman Act. This case addresses a different issue, namely whether plaintiffs who have already alleged a violation of the Sherman Act can demonstrate causation by showing that Bayer would in fact have granted a license but for its allegedly illicit conduct.

Thus, plaintiffs’ complaints have provided sufficient allegations that Bayer would have issued to Barr, HMR and/or Rugby a license for distribution of generic Cipro if it had not instead agreed to pay Barr and HMR hundreds of millions of dollars — an arrangement that plaintiffs claim is illegal — indeed,

per se

illegal. Moreover, it is fair to assume from the allegations in the complaint that if Barr intended to enter the market upon successful resolution of the patent litigation, it also would enter the market upon receiving a license, which would likewise shield Barr from any liability for patent infringement. Therefore, unlike plaintiffs’ successful litigation theory discussed above, this theory is not so speculative to justify denying plaintiffs the opportunity to show that the challenged agreements foreclosed the leverage provided by the patent litigation that would have led Bayer to grant a license.

As to HMR and Rugby, under this theory, plaintiffs have alleged injury-in-fact linked to those defendants. Plaintiffs assert that Bayer would have issued Barr (and perhaps HMR and/or Rugby) a license in the absence of the allegedly illegal agreements. In this regard, the presence of HMR and Rugby made it more likely than not that Bayer would have issued a

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license for generic Cipro. The fact that Rugby (and later HMR) was providing financial assistance to Barr during the patent litigation added to Barr’s leverage in that case, as it demonstrates that Barr had the resources to continue with the litigation, including a trial. In addition, the fact that a license would ward off not only Barr, but also HMR and Rugby, as two other potential patent challengers, makes it more likely than not that Bayer would have licensed Cipro if it had not entered into the challenged agreements.

Moreover, if Bayer granted Barr a license to manufacture generic Cipro, presumably in connection with a settlement of the Bayer/Barr patent litigation, that license would trigger the provisions of the Litigation Funding Agreement. Under that scenario, there is another plausible argument for linking lack of generic entry to HMR and Rugby. ' If Barr received from Bayer a license to manufacture Ci-pro, Rugby would begin distributing Barr-manufactured Cipro as contemplated by the Litigation Funding Agreement, as amended. Accordingly, but for HMR and Rugby agreeing not to enter the market with Cipro, Bayer would have granted a license to Barr to manufacture Cipro, and Rugby would have distributed generic Ci-pro.

(2)

Antitrust Injury

Since plaintiffs have alleged one theory of injury-in-fact causally linked to defendants’ alleged illegal conduct, it is necessary to determine whether that injury is “antitrust injury,” i.e., injury of the type contemplated by the antitrust laws.

See Brunswick,

429 U.S. at 489 , 97 S.Ct. at 697 . Antitrust injury “should reflect the anticompetitive effect either of the violation or of the anticompetitive acts made possible by the violation. It should, in short, be the type of loss that the claimed violations ... would be likely to cause.”

Id.,

97 S.Ct. at 697-98 (internal quotation marks and citation omitted). It is well established that the antitrust laws “[were] enacted to assure customers the benefits of price competition.”

Assoc. Gen. Contractors,

459 U.S. at 538 , 103 S.Ct. at 908 . As purchasers of Cipro, plaintiffs, therefore, present classic allegations of antitrust injury.

In fact, plaintiffs’ complaints demonstrate how the introduction of generic competition into the Cipro market would have greatly benefitted plaintiffs. According to plaintiffs, generic drugs are invariably priced below the brand-name drugs to which they are bioequivalent.

See, e.g.,

I.P. Compl. ¶ 47. A 1998 study conducted by the Congressional Budget Office (“CBO”) concluded that the purchase of generic drugs saved consumers and third party payors between $8-10 billion in a single year.

See, e.g., id.

Similarly, a report prepared by the Government Accounting Office in August 2000 observed that “[bjecause generic drugs are not patented and can be copied by different manufacturers, they often face intense competition, which usually results in much lower prices than brand-name drugs.”

Id.

Indeed, according to plaintiffs’ complaints, Barr has recognized the importance of generic drugs, as it spelled out on its web page:

Generic pharmaceuticals can cost 30-80% less than the equivalent, branded product. Yet, the consumer is getting the same product, manufactured to the same high standards, as the brand name product.

******

[Introduction of generic products— which offer consumers a choice — results in competition that can also help lower prices. The generic manufacturer

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makes a real contribution to lowering health care costs, by offering the very same quality pharmaceutical products at significantly lower prices.

Id.; accord

CVS Compl. ¶ 16; D.P. Compl. ¶¶ 26, 27. According to plaintiffs, Barr stated that it planned to enter the market for Cipro by initially pricing its generic product 30% less than Bayer’s Cipro.

See

I.P. Compl. ¶ 47. This price, plaintiffs maintain, would inevitably have been lowered, as additional generic companies entered the market and competed for market share.

See id.;

D.P. ¶ 26.

Moreover, the complaints recognize the detrimental consequences to Bayer of generic competition in the Cipro market. According to plaintiffs, a brand-name company loses a significant portion of its market share to generic competitors less than a year after the introduction of generic competition, even if the brand-name manufacturer lowers prices to meet such competition.

See

I.P. Compl. ¶ 48. The 1998 CBO Study estimates that generic drugs capture at least 44% of the brand-name drug’s market share in just the first year of sale.

See id.

Moreover, in testimony before Congress, a representative from the Pharmaceutical Research and Manufacturers of America (a brand-name pharmaceutical manufacturer’s trade association), confirmed that “in most cases, sale of pioneer medicines drop as much as 75% within weeks after a generic copy enters the market.”

Id.

In addition, the complaints establish that Bayer well understood the dramatic, adverse consequence that generic competition would have on Bayer’s sales of brand-name Cipro; indeed, it noted that “being hit by generics is traumatic for an organization.” D.P. Compl. ¶ 26;

accord

CVS Compl. ¶ 15. These facts demonstrate that, but for the challenged agreements, Bayer stood to lose billions of dollars in the face of generic competition. To prevent this result, plaintiffs maintain that Bayer suppressed generic entry in the Ci-pro market, at the expense of Cipro purchasers, including plaintiffs.

In re Warfarin Sodium Antitrust Litigation,

the Third Circuit sanctioned a claim of antitrust injury similar to the claim raised by plaintiffs in this case.

See

214 F.3d 395 (3d Cir.2000). The plaintiffs in

Warfarin,

indirect purchasers of the drug Coumadin, sought injunctive relief for the anticompetitive conduct of the drug’s manufacturer, DuPont Pharmaceuticals Company (“DuPont”).

See id.

at 396-97 . They alleged that DuPont’s conduct prevented competition in the Coumadin market, which caused Coumadin users to pay supra-competitive prices for the drug.

See id.

at 396, 400 . The court granted the plaintiffs standing for injunctive relief, remarking that “the excess amount paid by Coumadin users not only is ‘inextricably intertwined’ with the injury DuPont aimed to inflict, the overcharge was the aim of DuPont’s preclusive conduct.

It is difficult to imagine a more formidable demonstration of antitrust injury.” Id.

at 401 (emphasis added).

In this case, plaintiffs’ allegations of antitrust injury are equally formidable. Like the plaintiffs in

Warfarin,

plaintiffs in this case allege that defendants’ conduct suppressed generic entry in the Cipro market,

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causing plaintiffs to pay inflated prices for Cipro.

See

CVS Compl. ¶¶1, 52; D.P. Compl. ¶¶ 1, 63. According to plaintiffs, the agreements suppressed competition because, in their absence, Bayer would have granted a license to Barr and/or HMR and Rugby to market generic Cipro. As plaintiffs’ complaints establish, at the time of the agreements, there was uncertainty regarding the validity of the 444 Patent. Plaintiffs maintain that consumers would have benefitted from that uncertainty and if the risk of a court invalidating Bayer’s 444 Patent prompted it to grant a license under the patent. Moreover, plaintiffs argue that absent the payments, Barr’s interests were in line with its customers — it could make profits by selling less expensive, generic versions of Cipro to consumers, and it could make those sales by using the threat of invalidation to obtain a license from Bayer.

Instead, plaintiffs claim that, since entering into the agreements, Bayer has instituted price increases for Cipro that are among the highest percentage increases for any prescription drug in the United States.

See

Aston Compl. ¶ 95; I.P. Compl. ¶ 120. As a result, plaintiffs maintain that they have been denied the opportunity to obtain low-cost generic Cipro and are forced to pay süpra-competitive prices.

See

Aston Compl. ¶ 99; I.P. Compl. 135. Just as in Warfarin, in this case, Bayer’s “efforts to keep the generic drug off the market emanate from the fact that the introduction of the generic product would force down the price paid [for Cipro]. The higher prices paid were the

raison d’etre

of [Bayer’s alleged] antitrust conduct.” 214 F.3d at 402 . Accordingly, plaintiffs have advanced prototypical allegations of antitrust injury directly linked to defendants’ allegedly illegal conduct. Moreover, the injury occurred not only by reason of defendants’ allegedly illegal conduct — entering into the agreements — but also “from that which makes defendants’ acts unlawful” — illegally restraining competition in the market for Cipro.

Brunswick,

429 U.S. at 488 , 97 S.Ct. at 697 . Consequently, as plaintiffs have adequately alleged an antitrust injury casually linked to defendants’ conduct, defendants’ motions to dismiss plaintiffs’ complaints for failure to state a claim are denied.

(3)

Defendants’ Argument for Immunity under

Noerr-Pennington

Finally, defendants suggest that they can escape antitrust liability by hiding behind the protections provided by the

Noerr-Pennington

doctrine. Under this doctrine, legitimate government petitioning, including the filing of a non-sham lawsuit, is immune from attack under the Sherman Act.

See E. R.R. Presidents Conf. v. Noerr Motor Freight,

365 U.S. 127 , 81 S.Ct. 523 , 5 L.Ed.2d 464 (1961);

United Mine Workers of Am. v. Pennington,

381 U.S. 657 , 85 S.Ct. 1585 , 14 L.Ed.2d 626 (1965). The essence of the doctrine is that “no violation of the [Sherman] Act can be predicated upon mere attempts to influence the passage or enforcement of laws.”

Noerr,

365 U.S. at 135 , 81 S.Ct. at 528 . This principal is rooted in, and may be required by, the First Amendment to protect the right to petition the government for redress of grievances.

See id.

at 137 , 81 S.Ct. at 529 . Defendants incorrectly assert that their conduct is immune from liability because it was undertaken pursuant to the terms of the Settlement Agreements, which provided for the Consent Judgment to be entered by Judge Knapp.

Defendants’ argument is easily refuted. The challenged agreements in this case are private agreements between the defendants, in which Judge Knapp played no role other than signing the Consent Judgment. The Consent Judgment did not in-

*213

elude the terms of the agreements, nor was the judge even apprised of the terms before he “so ordered” the Consent Judgment. Even if signing the Consent Judgment could be construed as approving the Settlement Agreements, government action that “amounts to little more than approval of a private proposal” is not protected.

Cantor v. Detroit Edison Co.,

428 U.S. 579, 602 , 96 S.Ct. 3110, 3128 , 49 L.Ed.2d 1141 (1976). The fact that the patent court was subsequently informed of the material terms of the settlement does not change this conclusion. The Supreme Court has emphasized that “actual state involvement, not deference to private price fixing arrangements under the general auspices of state law, is the precondition for immunity from federal law.”

FTC v. Ticor Title Ins. Co.,

504 U.S. 621, 633 , 112 S.Ct. 2169, 2176 , 119 L.Ed.2d 410 (1992). Consequently, defendants’ conduct pursuant to the agreements in this case is not afforded immunity from the antitrust laws under the

Noerr-Pennington

doctrine.

(4)

Defendant Watson’s Individual Arguments

Watson moves to dismiss the Aston Complaint and Indirect Purchaser Plaintiffs’ Complaint for failure to state a claim upon which relief can be granted. To sustain a motion to dismiss, plaintiffs must allege that Watson’s conduct unlawfully restrained competition,

see Capital Imaging Assocs. v. Mohawk Valley Med. Assocs.,

996 F.2d 537, 543 (2d Cir.1993), and that plaintiffs suffered an antitrust injury causally connected to Watson’s conduct.

See Brunswick,

429 U.S. at 485 , 97 S.Ct. at 696 . Watson maintains that it had no involvement whatsoever with any of the conduct that plaintiffs allege was illegal and that plaintiffs have failed to allege the requisite antitrust injury against Watson.

Watson was not a signatory to any of the challenged agreements. Watson entered the picture in February 1998, a little more than one year after the agreements were executed. At that time, Watson purchased Rugby from HMR, pursuant to a Stock Purchase Agreement (“Purchase Agreement”) between Watson and HMR dated August 25, 1997 (and amended on November 26, 1997 and February 27, 1998).

See

Aston Compl. ¶ 85; I.P. Compl. ¶ 100. According to plaintiffs, in Section 3.35 of that agreement, the parties acknowledge Rugby’s obligations pursuant to the HMR/Rugby Settlement Agreement, including the obligation not to compete with Bayer’s Cipro or, according to plaintiffs, file any ANDA for a generic form of Cipro.

See

Aston Compl. ¶ 89; I.P. Compl. ¶ 106.

HMR’s agreement with Watson and Rugby concerning Cipro is described in two other documents, a Side Letter Agreement (“Side Letter”) between HMR and Watson dated February 27, 1998 and a Term Sheet for a distribution agreement (“Term Sheet”) to govern Rugby’s distribution of Cipro.

See

Aston Compl. ¶ 85; I.P. Compl ¶ 101. Plaintiffs allege that these two documents and the Purchase Agreement collectively embody an arrangement whereby HMR will share with Rugby and Watson any financial benefit from the marketing or distribution of Ci-pro or a generic form of Cipro.

See

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Aston Compl. ¶ 86; I.P. Compl. ¶ 102. Section 1 of the Side Letter provides the following:

[HMR] hereby agrees to pay Watson one-half of all amounts received by [HMR] or its Affiliates pursuant to the [Supply Agreement], the [Litigation Funding Agreement] or any agreement entered into by [HMR] or its Affiliates in replacement, amendment or substitution of either of the foregoing agreements ..., other than payments made or related to events prior to the launch of the Product (the “Launch Date”) by [HMR], Barr Laboratories, Inc....

Watson Mot. Dismiss Mem., Ex. A § 1;

accord

CVS Compl. ¶ 86; I.P. Compl. ¶ 102.

In addition, the Term Sheet designates Rugby as HMR’s “exclusive distributor of the product in the United States and Puer-to Rico.” Watson Mot. Dismiss Mem., Ex. A of Ex. A ¶ 3. According to plaintiffs, it further provides that once Rugby commences distributing Cipro or a generic equivalent thereof, HMR will share the profits equally with Watson and Rugby.

Plaintiffs also allege that the Term Sheet obligates Rugby to abide by certain resale price limitations that guarantee a “target profit percentage.”

CVS Compl. II87; I.P. Compl. ¶ 103. Furthermore, the Term Sheet states that “neither Rugby nor any of its affiliates will sell any product AB rated

with the Product during the term.” Watson Mot. Dismiss Mem., Ex. A of Ex. A ¶ 3 (footnote added). Ac

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cording to plaintiffs, this provision prevents Rugby, Watson and Watson’s other subsidiaries from selling any AB-rated formulation of Cipro.

Lastly, the Term Sheet contains restrictions on the sale of Cipro after a generic product reaches market:

After launch of the Product ..., neither Rugby nor any affiliate can sell any Product (whether purchased from a third-party or manufactured by it to any affiliate) for one-year after the termination (other than expiration as indicated in the first sentence under this heading) of the agreement, unless such termination is by Rugby due to a material breach by Parent (i.e., HMR) or is a wrongful termination by Parent.

Aston Compl. ¶ 88; I.P. Compl. ¶ 105.

Plaintiffs maintain that the provisions in the HMR/Rugby Settlement Agreement and in the Purchase Agreement, Side Letter and Term Sheet — which plaintiffs allege prevent Watson or Rugby or any of them affiliates from competing or attempting to compete in the U.S. Cipro market— are onerous to competition because another Watson subsidiary, Schein,

has filed an ANDA IV for Cipro. Accordingly, plaintiffs claim that unless enforcement of the challenged agreements is enjoined, “Schein will be prohibited from marketing a generic formulation of Cipro because it is an affiliate of Rugby and Watson....” I.P. Compl. ¶ 109;

accord

Aston Compl. ¶ 91. As further support for this assertion, plaintiffs emphasize that Section 8 of the HMR/Rugby Settlement Agreement provides that, in the event of a breach by any party (including Rugby and its affiliates), Bayer would be entitled not only to damages, but also to “specific performance of its rights hereunder.” I.P. Compl. ¶ 91 (internal quotation marks omitted);

accord

Aston Compl. ¶ 109.

Plaintiffs’ argument fails because they have misinterpreted the provisions of the HMR/Rugby Settlement Agreement. The complaints set forth the definition of the term “affiliate” from Section 9(e) of the HMR/Rugby Settlement Agreement as including “any entity ‘which controls, or is controlled by or under common control with’ HMR or Rugby.” I.P. Compl. ¶ 81. Plaintiffs claim that this definition includes not only HMR and Rugby, but also Watson and its respective subsidiaries (i.e., Schein).

See id.

However, in its brief, Watson correctly demonstrates that Schein is not in fact constrained by the terms of the HMR/Rugby Settlement Agreement. Indeed, although that agreement provides that HMR, Rugby and their affiliates acknowledge the validity of Bayer’s 444 Patent and agree to refrain from marketing a generic form of Cipro,

see

Aston Compl. ¶ 76; I.P. Compl. ¶ 81, Schein is not an affiliate of Rugby. The definition of affiliate in the HMR/Rugby Settlement Agreement states that “after a change of control transaction involving Rugby so that Rugby is no longer an affiliate of HMR, ‘affiliate’ with respect to Rugby shall mean Rugby, its successor, if any, by operation of law (other than Barr), and Rugby’s subsidiaries.”- Watson Mot. Dismiss Mem., Ex. B

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¶ 9(e). The sale of Rugby to Watson triggered this provision. According to Watson, Schein was then (and is still) a subsidiary of Watson, not Rugby.

See id.

at 7 n. 4 (citing Schein Pharmaceutical, Inc. Form 10-Q, June 24, 2000, at 7);

see also

Fed. R.Civ.P. 56, Advisory Committee’s Note (“The partial summary judgment is merely a pretrial adjudication that certain issues shall be deemed established for the trial of the case. This adjudication ... serves the purpose of speeding up litigation by eliminating before trial matters wherein there is no genuine issue of fact.”). Moreover, the Second Circuit has recognized the value of summary judgment in antitrust cases, noting that summary judgment is a “vital procedural tool to .avoid wasteful trials and may be particularly important in antitrust litigation to prevent lengthy and drawn-out litigation that has a chilling effect on competitive market forces.”

Capital Imaging,

996 F.2d- at 541. Lastly, courts have awarded plaintiffs partial summary judgment on the issue of

per se

liability, reserving for trial the issues of causation and damages.

See, e.g., Palmer v. BRG of Ga, Inc.,

498 U.S. 46, 49 , 111 S.Ct. 401, 402 , 112 L.Ed.2d 349 (1990);

Arizona v. Maricopa County Med. Soc’y,

457 U.S. 332, 344 , 102 S.Ct. 2466, 2473 , 73 L.Ed.2d 48 (1982);

In re Terazosin Hydrochloride Antitrust Litig.,

164 F.Supp.2d 1340, 1348-50 (S.D.Fla.2000);

In re Cardizem CD Antitrust Litig.,

105 F.Supp.2d 682, 692 (E.D.Mich.2000). Therefore, Bayer’s argument that partial summary judgement is improper in this case is rejected.

(2)

The

Per Se

Rule and the Rule of Reason

Section 1 of the Sherman Act makes unlawful “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States.... ” 15 U.S.C. § 1 . Although this provision literally bans every agreement involving interstate commerce, the Supreme Court has interpreted it to prohibit only those contracts that “unreasonably” restrain competition.

E.g., United States v. Topco Assocs., Inc.,

405 U.S. 596, 606-08 , 92 S.Ct. 1126, 1133-34 , 31 L.Ed.2d 515 (1972);

Standard Oil Co. v. United States,

221 U.S. 1, 55-60 , 31 S.Ct. 502, 513-16 , 55 L.Ed. 619 (1911).

To establish a Section 1 violation, plaintiffs must therefore show “ ‘a combination or some form of concerted action between at least two legally distinct economic entities’ ” that “ ‘constituted an unreasonable restraint of trade either

per se

or under the rule of reason.’ ”

Primetime 21 Joint Venture v. Nat’l Broad. Co.,

219 F.3d 92 , 103 (2d Cir.2000) (quoting

Capital Imaging,

996 F.2d at 542 ). A court decides which antitrust analysis to apply by first determining whether the challenged agreement falls into a category of conduct that the Supreme Court has found likely to have predominately anticompetitive effects

*232

and therefore to be illegal

per se. See Maricopa,

457 U.S. at 344-45, 351 , 102 S.Ct. at 2473-74, 2476 ;

Bogan v. Hodgkins,

166 F.3d 509, 515 (2d Cir.1999) (citing

Northwest Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co.,

472 U.S. 284, 298 , 105 S.Ct. 2613, 2621 , 86 L.Ed.2d 202 (1985)). The Supreme Court has long recognized that a limited class of restraints are so manifestly anticompeti-tive that they are

per se

violations of the antitrust laws. The judicial rationale for this

per se

rule is best summarized by Justice Black in the seminal case,

Northern Pacific Railway Co. v. United States,

356 U.S. 1 , 78 S.Ct. 514 , 2 L.Ed.2d 545 (1958):

[Tjhere are certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use. This principal of

per se

unreasonableness not only makes the type of restraints which are proscribed by the Sherman Act more certain to the benefit of everyone concerned, but it also avoids the necessity for an incredibly complicated and prolonged economic investigation into the entire history of the industry involved, as well as related industries, in an effort to determine at large whether a particular restraint has been unreasonable — an inquiry so often wholly fruitless when undertaken.

356 U.S. at 5 , 78 S.Ct. at 518.

Examples of

per se

illegal conduct include horizontal price fixing,

see United States v. Socony-Vacuum Oil Co.,

310 U.S. 150, 218 , 60 S.Ct. 811, 814 , 84 L.Ed. 1129 (1940); division of markets,

see Palmer,

498 U.S. at 49-50 , 111 S.Ct. at 403 ;

Topco,

405 U.S. at 609 , 92 S.Ct. at 1134 ; tying arrangements,

see Jefferson Parish Hosp. Dist. No. 2 v. Hyde,

466 U.S. 2, 9 , 104 S.Ct. 1551, 1556 , 80 L.Ed.2d 2 (1984); and group boycotts,

see Klor’s, Inc. v. Broadway-Hale Stores, Inc.,

359 U.S. 207 , 211-12, 79 S.Ct. 705 , 708-09, 3 L.Ed.2d 741 (1959). These categories reflect judicial experience with a particular type of conduct under the rule of reason.

See Maricopa,

457 U.S. at 344 , 102 S.Ct. at 2473 (“Once experience with a particular kind of restraint enables the Court to predict with confidence that the rule of reason will condemn it, it has applied a conclusive presumption that the restraint is unreasonable.”).

Because the Settlement Agreements and Supply Agreement may be viewed as dividing the market for Cipro, by allocating it to Bayer, there may be some facial appeal to applying the

per se

rule in this case. However, the issue is not so simple. The Second Circuit has noted, “a majority of cases fall outside these narrow, carefully demarcated categories held to be illegal

per se ”

and are, therefore, analyzed under the rule of reason.

Capital Imaging,

996 F.2d at 543 (“In the general run of cases a plaintiff must prove an antitrust injury under the rule of reason.”);

see also

II Hovenkamp,

IP and Antitrust,

§ 33.2 at 33-11; XI Hovenkamp,

Antitrust Laiu,

¶ 1901b at 185. In this regard, the Southern District recently recognized that filing an ANDA is sufficient evidence that generic drug companies are competitors of brand-name manufacturers.

See. In re Buspirone Patent Litig.,

185 F.Supp.2d 340, 343 (S.D.N.Y.2002) (noting that ANDA IV filers are competitors of brand-

*240

name manufacturer, who have been seeking to produce or sell generic versions of pioneer drug);

accord Andrx,

256 F.3d at 806-08 (noting that ANDA IV filer is “potential competitor” of brand-name manufacturer);

Cardizem,

105 F.Supp.2d at 701 (finding it “evident” that ANDA IV filer and brand-name manufacturer were competitors from generic manufacturer’s ANDA, Paragraph IV Certification and subsequent patent suit);

Terazosin,

164 F.Supp.2d at 1349 (finding that filing ANDA IV demonstrated that generic manufacturers were “poised to compete” with brand-name manufacturer at same level of market).

Similarly, challenging patents through litigation is a form of competition.

See United States v. Line Material Co.,

333 U.S. 287, 319 , 68 S.Ct. 550, 556 , 92 L.Ed. 701 (1948) (Douglas, J., concurring) (noting that patent litigation undertaken for purpose of bringing competitive product onto market is itself form of competition);

see also

Anthony,

supra,

at 3 (noting that agreement to resolve ANDA IV litigation is “agreement between competitors”). In fact, Barr’s Chairman and CEO recognized that challenging patents on brand-name drugs “is a key component of Barr’s generic pharmaceutical development activities,” Downey Decl. ¶ 12, and that such challenges are between “competitors.”

Id.

¶ 1;

cf.

G.Defs.’ Mot. Dismiss Mem. at 14-15 (arguing that chilling patent challenges would “harm competition”).

In this case, Barr filed an ANDA with a Paragraph IV Certification, the only certification that would permit Barr to market a generic version of Cipro before the 444 Patent expires.

See

21 U.S.C. § 355 (j) (2) (A) (vii). By making such a certification, “Barr announced to the FDA and to the world that it intended to compete with Bayer.” I.P. Summ. J. Mem. at 24 (citation omitted);

see

21 U.S.C. § 355 (stating purpose of ANDA is to gain approval “to introduce or deliver for introduction into interstate commerce” generic version of previously approved drug). In fact, Barr had to complete research and development and undertake various steps to pursue its ANDA, such as procure raw materials, formulate the product, analyze the patent, and perform the requisite bioe-quivalence testing.

See

Downey Deck ¶¶ 13, 15, 17. Such actions are sufficient to show that Barr had the “desire, intent and capability to enter the market.”

Engine Specialties, Inc. v. Bombardier Ltd.,

605 F.2d 1, 9 (1st Cir.1979) (noting that to find horizontal relationship, it must be shown that potential competitor had necessary desire, intent, and capability to enter market at same level);

see also

David A. Balto,

Pharmaceutical Patent Settlements: The Antitrust Risks,

55 Food Drug. L.J. 321, 334 (2000) (discussing

Terazosin

and noting that generic manufacturer “is a potential competitor since it had declared its intention and capability to enter with a bio-equivalent drug that it had certified as noninfringing”).

In response to all this, defendants argue that Generic Defendants are not actual or even potential competitors of Bayer because, until the 444 Patent expires or is invalidated, Bayer’s patent monopoly absolutely prohibits all competition in the domestic Cipro market. Defendants are incorrect; their argument ignores the Hatch-Waxman statutory scheme. Indeed, as discussed above in relation to defendants’ motion to dismiss, the Hatch-Waxman Amendments provide that an ANDA IV filer can market its generic drug once it has received final FDA approval, even before resolution of the patent litigation.

See

21 U.S.C. § 355 <j)(2)(B)(in);